July 16, 2009

Union Bank Of Switzerland And Its Problems With Records

The Union Bank of Switzerland, now called UBS, always seems to have problems with its past.

And actually for most of the last 60 years it has had problems with its Jewish customers who had been murdered by the Nazis. Somehow, the bank couldn't find their records. Or, since there were no proper death certificates (issuing them was not a habit in the Sobibor death camp), there was no way of knowing which of them were actually dead. And, in any case, absolute silence was the deal between the counting houses and their depositors. Moreover, the secrecy of Swiss banks was their bond. In fact, it was the law. "Why didn't your grandfather have the foresight to give you his secret account number before he went to Auschwitz?" Looted assets, what looted assets? Those assets belong to the survivors of the looters. You know how frosty Swiss bankers could be.

A bit more than a decade ago, a Swiss bank guard named Christoph Meili noticed that executives of UBS were preparing deposit records for the funeral pyre. He consulted with his wife, filched three ledgers, brought it all public...and rescued from the ovens the money of those who themselves no one ever tried to rescue.

The present tale of UBS and its engagement with its own archives is not quite as ghoulish as is its World War II saga.

The United States has an interest in UBS because at least 52,000 Americans have secret deposits with that bank. They are secret because these U.S. taxpayers don't want to pay their taxes, and Swiss banking laws and Swiss banks help them not to do so.

My friend James B. Stewart, author of Den of Thieves and The Partners, published a fascinating article in Wednesday's Wall Street Journal ("Offshore Tax Evaders Deserve No Sympathy") that is at once narrative and argument. The narrative is disgusting (in the sense of what it tells); the argument is persuasive.

The case comes down to this: Swiss law forbids Swiss banks from turning over the names and the records of depositors to anyone, least of all to the governments of the countries in which these people reside. That's why so many self-besot individuals take financial refuge in tax havens of which Switzerland is not the only such--although it may be the most reliable. (Does any U.S. law school have a course in tax havens?)

I suppose that the I.R.S. has its own ways of identifying some of these tax evaders. It is not a solution.

The Obama administration should make it clear to the Swiss government, as Stewart argues, that the gnomes of Zurich will not be able to do any business at all in the United States (and also American businesses with Swiss banks) unless UBS and its partners in tax crime release their records...pronto.

The financial crisis has fixed attention on many serious malpractices that have gone unattended for many years. Tax evasion is one of the most serious and offensive. The administration has many weapons with which to make it stop, first with Switzerland and then with the midget countries that profit off the same practices.